Step by Step
Keep Up Your List of Leaders
The market continues to stair-step in a positive pattern, allowing some cooling off without a major correction. Such a correction is always possible, but you shouldn’t fixate on that possibility and you shouldn’t delay investing in expectation that it will come. Instead, with all of our momentum indicators positive, you should be putting your money to work in great growth stocks.
And one of the best ways to do that is to maintain a list of leading stocks.
The list should be relatively stable–a true leader should lead for at least a few months–though of course there will be changes as time passes.
Consider fitting them into three categories.
Primary leaders are the top-quality names in the market; usually big, institutional names that have great sales and earnings, something new going for them (new product or management, etc.) and great relative strength.
Names in this category today include Apple (AAPL), Buffalo Wild Wings (BWLD), Seagate Technology (STX), Continental Resources (CLR) and Rackspace (RAX), among others.
Secondary leaders might have one piece missing; there’s nothing wrong with them at all, but they could be a bit slower-moving, lack a revolutionary new product or have a chart that has shown great action, but might leave something to be desired.
Names here include Visa (V), GNC Holdings (GNC), BE Aerospace (BEAV), CA Technologies (CA), LinkedIn (LNKD) and others.
Finally, speculative leaders are those that have great action but don’t have the institutional backing or fantastic growth that past winners have possessed … but the potential is huge and you can find some real home runs from this group.
Examples include a money-losing biotech like Medivation (MDVN), and potentially a name like Tesla Motors (TSLA) if it can break through the 35-level with force.
However you arrange it, the point is you should keep your watch list updated.
Today’s pick is a very good example of a primary leader. It takes massive data center resources to allow the “information superhighway” to operate, and Equinix (EQIX) is one of the key providers of those resources.
Here’s what I wrote about it in the February 27 issue of Cabot Top Ten Trader:
“When your computer connects to the Internet through your Internet service provider (ISP), that ISP needs a place to connect with all the other ISPs in the world, and Equinix got its start in 1998 providing the network-neutral interlocation needed. Equinix also provides collocation services, hosting Websites and cloud computing resources for clients. The company is expanding aggressively, both organically and via M&A. It acquired Switch & Data, the second-largest data center provider in North America, in 2010, and bought a controlling interest in ALOG Data Centers of Brazil in 2011. Revenue growth slowed only slightly during the Great Recession, and scored a 32% gain in 2011. The company’s Q4 earnings report showed a 21% gain in earnings on a 25% jump in revenues, beating expectations on both scores. As the global economy slowly recovers, analysts are forecasting a massive upgrading of Web resources as all kinds of companies move toward a fuller use of the Web as a way of doing business, and Equinix is positioned to benefit from that action.”
As to the chart, Equinix had a great year in 2009, but cooled off from its high of 111 in January 2010 to 69 in October 2010. After two full years, the stock was still trading just above 100, which made for a great base. January of this year brought a breakout run that’s still in progress, with EQIX soaring above 140 last week. The 25-day moving average for EQIX (now at 131) is rising in parallel with the stock. I think the stock is buyable on any weakness.
All the best,
Editor of Cabot Market Letter
Editor’s Note: Mike Cintolo is the editor of Cabot Market Letter, our flagship publication. Combining top stock picking, market timing and portfolio management, Mike has bested the S&P 500 by about 5% annually during the past five years–a period that encompassed bull, bear and choppy markets. With a new bull market taking hold, now is a great time to get in Mike’s program so you can take advantage of the leaders as they lift off. Click here to learn more.